flag Palau Palau: Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Palau is among the most performing small insular countries of Pacific, but it remains vulnerable to external economic shocks, the impact of climate change, and other environmental and weather-related risks. After becoming positive again, economic growth slowed down to -0.7% in 2019, due to a slump in tourism. According to the updated IMF forecasts from October 2021, GDP fell an estimated -8.7% in 2020 due to the outbreak of the COVID-19, and should follow a accelerated trend in 2021 (-19.7%) before standing to a ferm +14.9% in 2022 and +14.8% in 2023, subject to the post-pandemic global economic recovery and driven by a projected boost from a recovery in tourism and increase in capital expenditures through the Compact funds from the United States.

The overall fiscal balance remained in surplus in 2019 at 5.5% (IMF) primarily owing to low capital expenditure. Nevertheless, with an increase in spending under the Coronavirus Relief One-Stop Shop Program to mitigate the pandemic’s impacts on the private sector, a fiscal deficit equivalent to 13% of GDP was recorded in FY2020. Fiscal deficits equivalent to 24% of GDP in FY2021 and a further 11% in FY2022 were projected over the near-term (Asian Development Bank, 2021). As for inflation, it declined to 0.6% in 2019 and then to 0.7% in 2020, before reaching 1% in 2021. It is expected to stabilize around 1% in 2022 (IMF, 2022). Palau's economy consists of tourism and other services such as trade, subsistence agriculture, and fishing. The service sector dominates the economy, contributing to nearly 80% of GDP (World Bank, 2021). One of the government's main responsibilities is administering external assistance. In fact, Palau relies heavily on financial assistance from the US: under the Compact of Free Association with the US that took effect after the end of the UN trusteeship on 1 October 1994, the US provided Palau with roughly USD 700 million in aid for the first 15 years and in return had restricted access to its land and waterways for strategic purposes. The US continues to be the main contributor. In addition, the country relies on aid from the European Union, since Palau belongs to the category of the ACP countries (African, Caribbean and Pacific Group of States), and benefits from European Development Program funds. Recently the government has taken steps to diversify its economic activity in order to reduce its dependence on foreign aid, which represents about 20% of GDP and funds one-half of public expenditure.

The archipelago of Palau has one of the highest living standards in the Pacific. The population enjoys a per capita income roughly double that of the Philippines and much higher than Micronesia (USD 12,210 in 2021). Around 70% of Palau's population resides in Koror, the center of the tourism industry. Unemployment rate is very low (1.7% according to government statistics). The country's main challenges are to strengthen its resilience and ensure its medium-term growth.

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 0.250.220.230.270.31
GDP (Constant Prices, Annual % Change) -8.9-13.4-2.812.39.1
GDP per Capita (USD) 1412121516
General Government Gross Debt (in % of GDP) 0.00.00.00.00.0
Inflation Rate (%) 0.70.512.28.14.2
Current Account (billions USD) -0.11-0.06-0.10-0.09-0.09
Current Account (in % of GDP) -41.7-28.5-43.2-34.1-27.6

Source: IMF – World Economic Outlook Database - October 2021.

Note: (e) Estimated Data


 
Monetary Indicators 20162017201820192020
American Dollar (USD) - Average Annual Exchange Rate For 1 GHS 0.250.230.220.190.18

Source: World Bank - Latest available data.

 

Main Sectors of Industry

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Value Added (in % of GDP) 3.2 8.5 80.5
Value Added (Annual % Change) -5.2 2.3 9.3

Source: World Bank - Latest available data.

 
 

Country Risk

See the country risk analysis provided by Coface.

 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Free
Political Freedom:
1/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

Sources of General Economic Information

Main Online Newspapers and Portals
Palau News
Palau News Sites and Travel Guides
BBC Country Profile, Palau
Palau News
Useful Resources
Ministry of Finance
Ministry of Public Infrastructure, Industries, and Commerce
Bureau of International Trade and Technical Assistance
National Development Bank of Palau
 
 

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Latest Update: October 2022